Technicals | Apr 23 2012
LAYMANS:
A few weeks ago we took a look at the divergence being seen between the U.S. indices and our local market. The main thing to take away from that exercise was that patterns in the U.S. were looking very bullish indeed with strong impulsive price action clearly being the main theme.
On the flip side, the XJO has been very stagnant indeed rotating sideways with a slight bias to the upside since August 2011. That was, and still is reason for concern when looking at the bigger picture. That’s the bad news. The slightly better news is that our much vaunted 4400 area is finally coming under some serious pressure which is exactly what we wanted to see.
It’s also interesting that over the past week or so our market has actually shown some resilience whilst overseas markets have been embarking on some weakness. So we now find ourselves in exactly the right position although to move to a firmer bullish stance the line of resistance needs to be penetrated with a degree of attitude. That means seeing a strong push higher, a high close coupled with increasing volume.
Anything other would be reason for concern and keeps the door open for the sideways meander that’s been unfolding over the past few months to continue unabated. Obviously not what we want to see from a trading perspective. The downside level to watch is still 4246 which was put forward last week. A push beneath wouldn’t invalidate the patterns but it would take some heat out of the immediate bullish argument.
TECHNICAL:
From a technical standpoint nothing changes with our focus of attention remaining on the Elliott triangle and the line of resistance that has now been tagged. From here much is going to depend on overseas markets and whether they can start to kick higher once more. If they can it will provide the helping hand required to finally get our local market out of the starting blocks. We’re still as confident as we can be that if slightly higher levels can be seen price can rotate up toward the medium term target circa 4800.
As we mentioned last week a break up out of a triangle should be strong and impulsive in nature which gives us a clear guideline to adhere to. It basically means that the next move needs to be to the upside otherwise we’ll have to re-evaluate the patterns. One thing’s for sure, if the recent pivot low is breached then the bullish Elliott pattern rolls over completely. At least this gives us a focal point whilst also providing a right/wrong point to focus on.
My only slight concern here is that there’s a possibility that Type-A bearish divergence could be forming. It isn’t quite in position yet though a probe up through yesterday’s high followed by a weak close could well trigger the pattern. Price would then have made a higher high yet our oscillator will have failed to confirm. The best we could hope for then is further sideways consolidation though it does keep the door open for a retracement to unfold which should continue until the oscillator rotates back into the oversold position. Definitely something to keep a close eye on early next week.
It’s also worth noting that our oscillator is sitting in the overbought position on the weekly time frame (not shown) though this in itself is less reason for concern. Let’s hope that a good session is seen overnight on the Dow Jones as it could be the final trigger required in regard to getting our wanted leg higher.
Trading Strategy
20/4:
At the end of the day it’s impossible to know whether price is finally going to resolve itself to the upside though of course that would be the ideal scenario; both from a trading and a pattern perspective. It’s also worth remembering that some of the smaller cap stocks continue to show strength. This trait is likely to continue even if the current attempt at overcoming resistance fails.
Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not FNArena's (see our disclaimer).
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